Lux Leaks panel banks on voter rage

New draft report calls on national governments to ‘eliminate mismatches’ in policy.

Anticipating a tough legislative fight, the European Parliament’s special committee investigating tax shelters plans to play its trump card: citizen outrage.

The committee’s co-rapporteur Michael Theurer, a German MEP from the Alliance of Liberals and Democrats for Europe, told POLITICO’s German podcast that he expected “objections, difficulties and political resistance” from several countries once the panel proposes closing the loopholes that allow some companies to avoid paying tax in the EU.

“That is why I hope that citizens can create sufficient pressure on member states in order to come to a legislative framework,” Theurer said.

The “Lux Leaks” scandal triggered a public and political outcry in November 2014 when it was revealed that Luxembourg had set up special “tax rulings” that allowed multinational companies to avoid paying tax.

The revelations led European institutions to intensify political pressure on corporate tax practices in member states. The European Parliament set up the special tax committee, and gave it a mandate to look into the special tax arrangements and make recommendations for how to deal with them in a report to be published by the end of November.

But the Committee’s work was hindered by “the fact that a number of the Member States and the Council did not reply in due time,” and only four of the 18 multinational companies invited agreed to appear before the committee, according to a newly-released draft report.

Some multinational companies like Amazon declined to participate, citing an “ongoing investigation,” the report states. Others such as the Walt Disney Company also declined, the report states, but offered to “meet with representatives of the committee to hear their views.”

“It is a scandal,” Theurer said of the companies that refused to appear before the panel. “I have proposed to blacklist those companies and to stop them from lobbying in the European Parliament.”

POLITICO first reported earlier this month on the effort to bar lobbyists from several multinational corporations whose executives have refused to appear before the special committee.

In the draft report, the committee calls on member states to enhance cooperation with EU institutions to “eliminate mismatches” between tax systems and “harmful tax measures.”

It also calls for putting a system in place to ensure “that earnings that leave the EU are taxed at least once,” Theurer said. Companies would have to prove they pay taxes in Europe. 

The report will be amended and submitted to a vote in the full Parliament in November.

But before that the committee will hear testimony from Commission President Jean-Claude Juncker, who came under fire soon after taking office because he had been prime minister of Luxembourg during the time the tax shelters were used. Juncker will appear before the committee on September 17.

“We’d like to know from him as a former head of government what the motivation in Luxembourg was,” Theurer said.

Theurer was especially critical of EU member countries, which retain power over tax policy, for creating “loopholes” that enable some global companies to avoid paying any taxes in Europe.

He called the new Parliament draft report “a milestone on the bumpy road towards an efficient regulatory framework to enable fair tax competition within the meaning of the social market economy.”

The 45-member “Special Tax Committee” was established in February, a few months after the International Consortium of International Journalists published a trove of leaked documents revealing that Luxembourg’s fiscal administration had allowed major international corporations such as Ikea and Pepsi to avoid taxes through hundreds of special “tax rulings.” 

The draft report offers recommendations to member states and the European Commission in their efforts to boost fiscal transparency. The Commission already presented measures of its own in June, including the automatic exchange of information between member states regarding special tax rulings. 

Corporation tax avoidance is harmful, the report said, “because of its impact on national budgets, already subjected to fiscal consolidation measures, and on the tax burden of other taxpayers, including SMEs and citizens.”

Among other recommendations, the report called on countries and the EU institutions to extend automatic exchange of information to all rulings, to “speed up” the prompt establishment of a compulsory EU-wide Common Consolidated Corporate Tax Base (CCCTB) and adopt an EU legislative framework to protect whistleblowers.

The CCCTB, which was first proposed by the Commission in 2011, offers “a single set of rules that cross-border companies could use to calculate their taxable profits in the EU,” instead of having to deal with different national systems. Negotiations on that plan stalled, however, because it was too ambitious in terms of consolidation of national rules, which many countries oppose. 

Unlike the Commission, the Parliament’s special committee does not have the power to investigate. It has held a series of public hearings on tax rulings aimed at raising public awareness of the issue. The hearings have included testimony from Commissioners Margrethe Vestager and Pierre Moscovici, whom Theurer called both “very helpful,” as well as OECD representatives, whistleblowers, journalists, trade unions, national parliaments and non-governmental organizations.

Committee delegations also investigated tax rulings in Switzerland, Belgium, Luxembourg, Switzerland, Netherlands, Ireland and the United Kingdom.